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Big job cuts at Pick n Pay 'just running repairs'

| Economic factors

Significant job losses at Pick n Pay, with more expected to come, are considered a necessary structural shift at the country's second-largest food retailer to make it more competitive in a tough economy.

Pick n Pay, which has cut 3 500 jobs, is embarking on a second round of retrenchments, it was confirmed on Friday.

Bones Skulu, general secretary of the South African Commercial, Catering and Allied Workers' Union (Saccawu), said Pick n Pay has issued two more notices to employees with the intention of retrenchment.

"One was sent to a plant in the Western Cape, with the intention to retrench by the 31st of October this year. The other to the group's employees in the property division with the same intention," said Skulu. The retrenchments will also be targeting staff across sections of workers in Pick n Pay's property division.

David North, Pick n Pay's group executive of strategy and corporate affairs, said on Friday: "We are removing a small number of jobs in our head office in specific functions where the work is no longer required. This is very limited and localised, and is unrelated to the voluntary severance programme which concluded in April, and which we have no plans to repeat."

Kaya Nodada, a food retail analyst at Old Mutual Equities, said based on employee costs as a percentage of sales, Shoprite was the most efficient food retailer.

"Shoprite looks better than Pick n Pay in terms of that metric," said Nodada, adding that Woolworths Food was probably closer to Shoprite than to Pick n Pay.

"Pick n Pay wasn't as efficient to start with. I don't think this voluntary severance programme is the start of a trend that will be rolled out by other retailers. This is part of the self-help journey Pick n Pay has been on to turn the business around."

However, on Friday Chantal Butler, director of human resources for Woolworths South Africa said: "We, like any other business, continually review our structure relative to our strategy."

Mark Godfrey, group financial director of the Spar Group, said the economic slowdown was hitting retailers and forcing management to review all aspects of the business, "including a detailed analysis of costs".

While no decisions affecting employees had been taken or were envisaged, Spar had to ensure productivity was maintained. "Should volumes continue to decline, we will investigate all possible options, in conjunction with employees and union representatives, to achieve our profit objectives."

Godfrey said performance metrics had been improving across the group for years but conditions had worsened in the last nine months. "Sale volumes have slowed substantially since October," he said.

Commenting specifically on Pick n Pay, Nodada said CEO Richard Brasher came in four years ago to stabilise Pick n Pay and the retailer was now working on changing its trajectory. Some roles and functions were no longer relevant as the business and competitive environment had evolved. Nodada expected additional people to be employed as the group rolled out new stores.

However, retrenchments at apparel retailers could signal further job losses in this retial category.

Sizwe Pamla, national spokesman for Cosatu, said: "What they are talking about is more a crisis of profit, not a crisis of survival. They are going through a cycle and in an economic cycle you can't just dispense with the people who have carried the organisation on their backs." Also worrying was Pick n Pay's experiment with self-service checkouts, which constituted a threat to jobs, he said.

Last year the retailer started testing self-service checkout machines at its Observatory store in Cape Town.

North said employees who accepted the voluntary severance package - that included those who had worked in head office or on the shop floor - had left the business at the end of April. The process mostly affected staff in South Africa.

Pick n Pay employs 80 000 people at group level, including the franchise business Boxer and stores outside South Africa. The job cuts affected about 10% of the workforce, mostly in South Africa. North said there were no plans to run another voluntary severance programme.

Lean and productive

"The aim was to get leaner in stores and head office, reducing our operating costs and improving our productivity across the business. This is precisely what we set out to do in our turnaround plan and we have done it. By being leaner we can invest more in price and value, which is precisely the help that customers want in this tough economy."

The company could replace certain roles over time, he said. The retrenchments were done on a voluntary basis and so Pick n Pay might fill in positions they deem necessary to the group, he said.

North said the number of casual workers in the company was marginal and the group still expected to create more jobs this year through new store openings than it had lost via the retrenchments. The programme was about resetting the cost of business and Pick n Pay was stronger as a result.

Pick n Pay said the cost of the retrenchments would weigh on its profits in the six months to end-August. It expected its headline earnings a share for the half-year to fall by more than 20%.

But payroll savings in the second half of the year would neutralise the effect of the retrenchment costs on its full-year results. Over time the payroll savings would have a positive impact on operating costs.

Pick n Pay's cost-cutting measures are a consequence of the retailer's struggle to regain the market share it lost to more efficient competitors over the last few years.

Trimming staff expenses has included cutting out bonuses and pay cuts for all executives. Executive director Richard van Rensburg's pay fell from R7.1-million to R4.7-million and finance director Bakar Jakoet's declined from R6.6-million to R4.8-million in the year to end-February 2017.

In the previous year Brasher received a short-term annual bonus of R15-million, taking his remuneration to R24.4-million in the year to end-2016, and other executives also received bonuses.

Evan Walker, portfolio manager at 36ONE Asset Management, said: "Shoprite's always been more efficient than other retailers, by as much as 25% to 30% on their salary-costs-to-revenue line in corporate stores.

"It's a legacy issue. Shoprite always had rural stores and Pick n Pay has more regional stores in high-end centres. It's not just purely based on Pick n Pay's inefficiency, but on geographical location." In rural areas, salaries were lower.

Walker said Pick n Pay was able to cut jobs only now because it was not sufficiently automated before. It was difficult to compare the different groups as Spar was a wholesale and distribution company and numbers across the board were not readily available.

"It's expensive but in the case of Pick n Pay they needed to do it ... to make themselves more competitive. Shoprite is still gaining market share at the expense of Pick n Pay, Spar and Woolworths. Food retail is just exceptionally over-traded."

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